Look at Maine Beverage Co. data, not claims

By Eben B. Marsh, Special to the BDN
Posted March 31, 2013, at 12:15 p.m.

Probably not since the 21st Amendment has Maine’s liquor business received as much attention as it has during this legislative session.

In 2004 Maine awarded a contract to out-of-state investors to operate the state’s liquor system. The marriage of Massachusetts-based Martignetti Co. and New York based-investment firm Lindsay Goldberg & Bessemer became Maine Beverage Co.

Since winning the contract in 2004, Maine Beverage has taken a professional caretaking approach to Maine’s liquor business. Upon deep review of the data, it is clear that claims of Maine Beverage significantly expanding the business are unfounded.

First, according to data from the National Alcoholic Beverage Control Association, Maine Beverage has maintained only a status quo performance since it began its operations in 2004. Maine Beverage’s management of the state’s liquor contract, according to the association, shows that since 2004, Maine’s liquor sales have not grown any more than the average rate of all other states that control liquor sales.

Second, there has been no improvement to retrieve sales lost to New Hampshire as a way to improve Maine’s revenue. The ratio of case sales between these two rival states remains at the same rate in 2012 as it was in 2004. Meaning, money that should be staying in Maine is, instead, going across the border to New Hampshire.

Finally, since Maine Beverage took over operations, Maine’s standing in sales performance among all control states has slipped two places. In 2004, Maine was 11th among the 18 control states. Today Maine is ranked 13th.

It is evident that Maine has not realized any incremental improvement to the value of its liquor business above what is termed as organic growth. In fact, the dollar increase in sales since 2004 is due to distiller market price increases and the doubling of the number of retail agencies throughout the state, not an expanding market.

Before it acts, the Legislature must consider Maine Beverage’s actual performance against its claims.

The liquor business is unique, though it is not “mysterious.” Maine Beverage does not deserve to be granted the state’s next contract on a silver platter.

LD 644, one of the bills currently being considered by the Legislature, offers a “guaranteed profit margin” to the contractor. A guaranteed profit margin is not an incentive. As demonstrated in Maine Beverage’s performance over the first eight years of its contract, guaranteed-no-risk assurances serve to protect status quo; they do not provide an incentive to outperform.

Maine’s liquor business is a cash-flow business. By law, the liquor business operates on a three-day accounts receivables.

Maine Beverage, furthermore, has no risk of cash or capital. The distillers own the inventory, and the sales proceeds pass through Maine Beverage and belong to the state. The role of Maine Beverage is as a service provider managing the logistics, order taking and what the data show to be a marginal marketing effort.

Lastly, it is also important to mention that the profits from the liquor sales now go out of state. This is this same approach that Maine Beverage wants to continue with LD 644. It is likewise the same approach that has seen Maine’s liquor business fall from 10th to 12th over the life of the contract.

Other Maine businesses are qualified to operate this contract, keeping proceeds within the state and with a much greater return to the state of Maine. Maine businesses deserve to be given a fair chance to compete for the state’s upcoming liquor services contract.

Eben B. Marsh of Scarborough served as director of the Maine Bureau of Liquor and Lottery Operations under Gov. Angus King and is a partner in All Maine Spirits, a potential bidder for a contract to run the state’s liquor business.

http://bangordailynews.com/2013/03/31/opinion/look-at-maine-beverage-co-data-not-claims/ printed on November 26, 2014